If you’re starting out in business you will need to prepare a financial forecast and budget in order to move forward. In summary a budget is what you’d like to happen, and a forecast is a reflection of what might actually happen.
A budget is a detailed financial outline or what the business thinks it will spend over a set period of time – usually a year (known as a financial year). It’s a summary of your business and you can base your budget on your forecast of revenues and costs.
Most budgets are static and set for the company’s financial year. However, you can use the static budget as a guideline, and be flexible if business conditions change. You can adjust your spending if that’s the right business decision at the time.
How to use a budget when it comes to your business.
A budget is a key management tool for any business with the ability to compare actual financial results with budgeted figures. This will allow you to measure the performance of your business from understanding the figures you would like to achieve, what you have to spend and a good point for comparison at the end of each budgeting period.
Always consider essential expenses into your budget (things you need to pay for to physically open the doors to your business such as electricity and broadband) to help prioritise spending. It can also pay in the long term to be cautious with your cash-flow projection and, if you have any, incorporate debt reduction into your budget.
When you have your budget make sure you review this on a regular basis. Are you on track? Have you created more revenue or see any business loss that was not included in the budget?
A financial forecast is a projection of what will happen on a ‘top level’ look throughout that time frame including key revenue items and overall expenses.
A financial forecast can be done for a short-term purpose; usually for operational reasons, for example staffing levels or to present to a bank for a loan or for long-term; a look at what is likely to occur over several years of the business which would feed into a business strategy or plan. When you are first starting out in business you may find monthly or even weekly forecasts helpful.
Forecasting is a vital tool and will assist you in identifying any adjustments that need to be made to spending. For example, if a customer notifies you of a reduction or increase to their volume of business with you this could have an impact on your cash flow.
As with your budget, you should update your forecast on a regular basis and involve key members of your team, not only will you have a clearer forecast on all angles of the business but by involving your team you are keeping them involved. You can also create more than one forecast so you have a picture of an optimistic and pessimistic outlook.
Here at Kara Accountants, we can work with you to prepare a financial forecast for your business, enabling you to have the tools necessary to present your ideas when required.
Whether this is a short-term or a long-term financial forecast, bring your ideas to us and our team can work through these equipping you to forecast and measure your business progress. We are FUTRLI accredited partners and can use the power of FUTRLI to generate real time live updating forecasts as well as specific scenario analysis to give you better access to reliable information for decision making and analysis.
If you’re starting out in business or would like help in preparing a financial forecast or budget in order to move forward, you’ve come to the right place. Contact us for more information.